Are Shanghai's days as the freewheeling, red-tape slashing golden boy of China's economic boom coming to an end?

The dismissal in a corruption probe of the city's most powerful official, local Communist Party secretary Chen Liangyu, suggests Shanghai might no longer take the lead as China pushes economic reforms and develops huge new economic projects.

The demise of one of its top political patrons shows the city's relative status is slipping as it lobbies the central government in Beijing for resources and regulatory freedom, corporate executives and analysts said.

In past years there was an awful lot of emphasis placed on pouring benefits into Shanghai, said Arthur Kroeber, managing director of Dragonomics, a Hong Kong-based research firm.

Now it's very clear that the government has started to pursue other channels of development.

Shanghai's spectacular economic success in the 1990s and through the early part of this decade, symbolized by the futuristic skyscrapers of the financial district, was partly based on politics.

Former Chinese President Jiang Zemin was previously a mayor of Shanghai, and he brought a train of senior Shanghai figures to Beijing with him.

But the influence of the Shanghai gang has been fading since President Hu Jianto became Communist Party leader in 2002. While Chen's dismissal this week was part of Beijing's efforts to fight corruption nationwide, many Shanghainese believe it would not have occurred if their city was still pre-eminent.

Shanghai, which boasts the world's busiest port, the country's main banking center and China's largest unofficial municipal population of 18 million, will remain an economic giant.


In contrast to past decades, when leadership changes in China could signal drastic policy shifts, few expect the city's business-friendly environment to change. Rapid economic growth has become too important to the stability of the central government.

In a sign of continuity, the official Xinhua news agency said Chen would be temporarily replaced as city party boss by Shanghai Mayor Han Zheng. Vice Mayor Zhou Yupeng told Reuters that there would be no change at all to economic policies.

But corporate executives said that in future, the city might find it harder to justify special economic treatment by Beijing, and might be forced to implement central policy directives, such as those designed to crack down on excessive industrial investment and real estate speculation, more strictly.

While the benchmark Shanghai stock index dropped only 0.2 percent on Monday in response to news of Chen's dismissal, Shanghai-focused property stocks tumbled as much as 5 percent, showing investors fear the regulatory environment for the city's real estate market could worsen.

I have to say the city's investor confidence will be affected to some degree by this, said a foreign banker in Shanghai, who added that Chen's dismissal was significant enough for the chief executive of her bank to be informed immediately.

Shanghai is now looking more like a 'normal' city or province. The central government has recently given more priority to places like Tianjin, and not Shanghai any more. These things may be signs of the future.


Earlier this month, the government announced it would conduct a trial liberalization of China's foreign exchange trading system in the Tianjin Binhai New Area on the northeast coast, and not in Shanghai as some had hoped.

Billions of dollars are being earmarked to develop the Tianjin area's port, rail and communications infrastructure, raising the possibility that the city near Beijing could eventually become a counterweight to Shanghai in the national economy.

The investigation into misuse of Shanghai's social security funds has over the past few months implicated at least two other city officials and several executives from Shanghai Electric Group, China's biggest power gear maker, and Fuxi Investment, one of the city's biggest private investment firms.

The way in which the probe is being conducted has, at times, seemed calculated to underline the central government's power over Shanghai.

More than 100 investigators from Beijing have taken over an entire luxury hotel near the city center, setting out in cars with tinted windows to grill officials and executives.

Hearing that officials from Beijing were in town, several local residents appeared at the hotel with petitions and complaints about problems in the city before a heavy police guard moved them away, residents in the area said.